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Consumers May Balk At Paying For Outage-Proof Utilities · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa Abramowitz. Each day we
• 0:11
  Speaker 1: bring you the most important, noteworthy, and useful interviews for
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  Speaker 1: you and your money, whether you're at the grocery store
• 0:17
  Speaker 1: or the trading floor. Find the Bloomberg P M L
• 0:20
  Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. The
• 0:27
  Speaker 1: devastation and destruction from Hurricane Florence may leave three million
• 0:31
  Speaker 1: homes and businesses without power. Here to tell us more
• 0:35
  Speaker 1: about the situation. It's is Kit Contllege, our senior industrials
• 0:39
  Speaker 1: and utilities analysts for Bloomberg Intelligence. He joins us here
• 0:43
  Speaker 1: in our eleven three oh studios. Kit is always a
• 0:45
  Speaker 1: pleasure to have you here. Give us an update on
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  Speaker 1: what you know about the utilities response to the hurricane
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  Speaker 1: well him. The utilities gear up obviously days ahead of time,
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  Speaker 1: and in recent years, in response to criticism in the past,
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  Speaker 1: they've kind of, if you will, over prepared for these situations.
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  Speaker 1: They call in thousands of backup linemen from other utilities
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  Speaker 1: around the country, so they should be well prepared. Obviously,
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  Speaker 1: once the lights start going out. Now I think they're
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  Speaker 1: up to about half a million outages now, and we'll
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  Speaker 1: see how rapidly that goes. Uh. Everybody expects there to
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  Speaker 1: be outages, then the utilities tend to get measured on
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  Speaker 1: obviously the safety of their operations and also on how
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  Speaker 1: quickly they turn people back on. So one thing that
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  Speaker 1: I'm wondering is just in general, are utilities that are
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  Speaker 1: relatively close to the coast prepared for more storms like this,
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  Speaker 1: given the fact that it is expected that we will
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  Speaker 1: see more of them, right, Lisa, While they uh, you know,
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  Speaker 1: they tell you they are so uh, it's the proof
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  Speaker 1: is always in in what they do. I think I
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  Speaker 1: think it's fair to say that certainly after Ukushima in Japan,
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  Speaker 1: they got very focused on making sure that the truly
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  Speaker 1: critical infrastructure, the nuclear plants in particular, uh is safeguarded
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  Speaker 1: from uh, you know, anything they can think of in
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  Speaker 1: terms of really outside of normal conditions. Uh. But look,
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  Speaker 1: it's a long coastline. There's a lot of stuff that
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  Speaker 1: can go wrong, and I think we just have to
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  Speaker 1: see each time are they prepared or are they not prepared.
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  Speaker 1: Talk a little bit about the responsibility that utilities bear
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  Speaker 1: during natural disasters, but also when it comes to disasters
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  Speaker 1: and catastrophes such as the one that is at least
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  Speaker 1: currently being experienced in Massachusetts and Lawrence and and over
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  Speaker 1: north and over with gas seemingly gas explosions. What is
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  Speaker 1: about the liability issues that's important to know? Right well?
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  Speaker 1: The the usual rule that investors think about and that
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  Speaker 1: utility managers think about is that, uh, they're there are
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  Speaker 1: natural disasters that you can't of course prevent, uh, but
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  Speaker 1: you can do something about and you're judged on how
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  Speaker 1: well you respond to them. Like a hurricane. Uh, when
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  Speaker 1: a gas pipe explodes that you're operating that's never supposed
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  Speaker 1: to happen, clearly, so immediately, I mean that stock of
• 3:25
  Speaker 1: the company that owns that nice sources down ten or
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  Speaker 1: eleven percent today. Uh. And and naturally people are concerned,
• 3:34
  Speaker 1: as they should be, and the local population is concerned
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  Speaker 1: about how bad the pipes are in the ground. You know,
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  Speaker 1: one thing that I'm struck by just with natural disasters,
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  Speaker 1: I mean, obviously and an explosion that shouldn't have happened
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  Speaker 1: that caused death is a whole situation unto itself. But
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  Speaker 1: one thing that I'm struck by is even when there's
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  Speaker 1: a strong windstorm you often hear of people losing power
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  Speaker 1: off in thousands, especially with congested area is like the
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  Speaker 1: Tri State area right around New York City. I'm just wondering,
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  Speaker 1: I mean, what is the move going forward going to
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  Speaker 1: be to try to ensure longer access to electricity? I mean,
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  Speaker 1: it seems like it should be better that you know,
• 4:15
  Speaker 1: that's a that's a great question, because there are solutions
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  Speaker 1: to it. Unfortunately, they're very expensive. Every time there's a
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  Speaker 1: hurricane in Florida, for example, Uh, somebody suggests, let's bury
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  Speaker 1: all the power lines. Well, you know that, Well, it
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  Speaker 1: would work if you wanted to spend ten or twenty
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  Speaker 1: billion dollars. And but it's also, as we know, uh,
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  Speaker 1: pretty high water table in Florida, So how well the
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  Speaker 1: wires would survive for how long you know, is another issue.
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  Speaker 1: So I think it's fair to say that there's a
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  Speaker 1: trade off there, right, I mean, the society as a
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  Speaker 1: whole has decided that some outages sometime are worth it
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  Speaker 1: because the alternative of making it completely uh you know,
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  Speaker 1: bulletproof to to operate under any conditions is just too expensive.
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  Speaker 1: You have systems like the nuclear plants communicating with each other,
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  Speaker 1: or military uses then there are situations where not just
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  Speaker 1: electricity but any other communications or energy, etcetera, are are
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  Speaker 1: very hardened. Uh, but that's an very expensive way to go,
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  Speaker 1: and maybe more than people want to pay. I don't know.
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  Speaker 1: Every time I hear about the thousands of people who
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  Speaker 1: lose their power when there's like a little bit of wind,
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  Speaker 1: my my in laws have a situation. I heard about
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  Speaker 1: it for weeks. Anyway, Cottee, thank you so much for
• 5:40
  Speaker 1: being with us Kit Conteledge Senior Industrials and utilities analyzed
• 5:43
  Speaker 1: for Bloomberg Intelligence. I'm sure you'll be filling us in
• 5:47
  Speaker 1: as we assess the damage. It will be important to
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  Speaker 1: track although at a certain point you have to wonder.
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  Speaker 1: Right now, really our thoughts are with people whose homes
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  Speaker 1: are getting flooded and who are uh, you know, potentially
• 5:58
  Speaker 1: going to be losing a lot of things. Is a
• 6:00
  Speaker 1: devastating storm with the storm surge that is, and all
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  Speaker 1: the people who are stranded. We're thinking of you and
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  Speaker 1: hoping that you are safe as well. Maybe you know
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  Speaker 1: travelers and someone that are hopefully safe and out of
• 6:12
  Speaker 1: harm's way. Yeah, and in shelters. I saw a lot
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  Speaker 1: of people in schools and things with their children. It's
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  Speaker 1: very disruptive and I'm sure alarming, so our thoughts are
• 6:21
  Speaker 1: with them. Emerging markets has been a big question mark
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  Speaker 1: over the past few weeks, a huge fall as Turkeys
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  Speaker 1: financial crisis or i should say currency crisis got underway,
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  Speaker 1: and Argentina seemed to be heading towards a similar direction
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  Speaker 1: than a pause. And over the past two days we've
• 6:39
  Speaker 1: seen a little bit of a rebound today a little
• 6:41
  Speaker 1: bit flat. Joining us now to find out whether this
• 6:43
  Speaker 1: is a time to buy developing markets assets or time
• 6:47
  Speaker 1: to sell. As Michael Brandon's chief of US was tragist
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  Speaker 1: of each how private bank it is Latin America's biggest bank. Correct,
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  Speaker 1: that is correct? All right? Thank you so much for
• 6:57
  Speaker 1: being with us. You've been covering emerging markets for a
• 7:00
  Speaker 1: long time, and credit in particular, and I'm wondering as
• 7:03
  Speaker 1: we view developed the developing world right now, are we
• 7:07
  Speaker 1: looking at the beginnings of a protracted sell off as
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  Speaker 1: a fed raisers rates or is this what we've seen
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  Speaker 1: in the past few months, a hiccup that is a
• 7:16
  Speaker 1: buying opportunity. Well, I mean, and first of all, thanks
• 7:18
  Speaker 1: thank you for having me here. It's it's real pleasure
• 7:21
  Speaker 1: to be back the current I would say the current
• 7:24
  Speaker 1: window of opportunity is still representative of more stress to come.
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  Speaker 1: I think a more tractive window is opening up. So
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  Speaker 1: I I am constructive about e M. I would say
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  Speaker 1: in the medium term, but in the very short term,
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  Speaker 1: while we're encouraged by what happened to Turkey yesterday, by
• 7:43
  Speaker 1: the surprise hike from Russia today, uh we think that
• 7:46
  Speaker 1: there is a willingness for emerging market countries to address
• 7:51
  Speaker 1: inflation concerns and the volatility and their currencies. It may
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  Speaker 1: be just a little early, um to start adding back
• 7:58
  Speaker 1: into exposures. Looking at the performance of the Brazilian real,
• 8:03
  Speaker 1: the chart seems to indicate that things are not getting better,
• 8:08
  Speaker 1: that the value of the currency will continue to deteriorate
• 8:11
  Speaker 1: against the US dollar. What's your call, Well, I mean,
• 8:16
  Speaker 1: what's happening with the real h is representative also of
• 8:20
  Speaker 1: we have we have presidential elections coming next month, which
• 8:23
  Speaker 1: is very uncertain, and then the volatility happening more broadly
• 8:27
  Speaker 1: in currency market. So our view is that we should
• 8:31
  Speaker 1: see the real top out here. Uh. We we think
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  Speaker 1: that we're our target is still for about a three
• 8:37
  Speaker 1: point nine against the dollar, which would be a little
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  Speaker 1: stronger than where it is right now. What we need
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  Speaker 1: to see, though, beyond the domestic geopolitical uncertainties, we need
• 8:49
  Speaker 1: to see less currency volatility more broadly, maybe a softening
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  Speaker 1: the US dollar, maybe a little lower in US trade tensions.
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  Speaker 1: But the fundamentals in Brazil are still quite sound. I'm
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  Speaker 1: struggling with something that you said, which is that you
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  Speaker 1: do see more pain ahead for emerging markets. There's some
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  Speaker 1: positive steps being taken, but there is more downside here.
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  Speaker 1: How do you, as a portfolio manager and a portfolio
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  Speaker 1: constructor with a huge focus on e M, how do
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  Speaker 1: you invest? Then? Well, what you do is you look
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  Speaker 1: for the brighter spots, You try to be more selective
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  Speaker 1: about your exposures. You manage your currency risk to the
• 9:27
  Speaker 1: best extent you can. So how do you do that? Well,
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  Speaker 1: you do that. Let's say you look at hard currency
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  Speaker 1: versus local currency UH debt uh, and we look at
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  Speaker 1: opportunities let's say in in Russia or Colombia, probably more
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  Speaker 1: uh sustainably positive than places like Turkey Argentina. So you're
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  Speaker 1: out of Turkey and Argentina. Turkey and Argentina, well, Argentina, UH.
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  Speaker 1: We you know, we we think that the I m
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  Speaker 1: F package, there's been talk of getting that expedited act um.
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  Speaker 1: We were more positive there than in Turkey, where I
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  Speaker 1: think the political risk is really different from what President
• 10:07
  Speaker 1: Mockery has presents to the Argentine Republic. But again, the
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  Speaker 1: pain near term is going to be difficult, so we diversify.
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  Speaker 1: We look at diversifying that risk into the developed markets
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  Speaker 1: and in hard currency debt. Where do you find the
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  Speaker 1: biggest challenge to liquidity Right now, the biggest challenge of
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  Speaker 1: liquidity is in well in e M broadly, we're seeing
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  Speaker 1: flows come out and and part of this is this
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  Speaker 1: is challenging because what does that mean? The bid and
• 10:36
  Speaker 1: ask spread gets wider and wider. That's right, So the
• 10:39
  Speaker 1: bid aspread has widened, the level of trading has diminished,
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  Speaker 1: and what that does also it has an impact and
• 10:46
  Speaker 1: the ability to generate new supply. So one of the
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  Speaker 1: one of the problems in the technical side of the
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  Speaker 1: market going forward is that on on on the corporate
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  Speaker 1: or in the credit side of e M, we have
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  Speaker 1: a calendar of supply that's supposed to come up, but
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  Speaker 1: at the same time you have investors pulling back because
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  Speaker 1: of the volatility we discussed, and that is uh affecting
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  Speaker 1: price discovery. Right, So when markets that are less liquid,
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  Speaker 1: you need this price discovery, You need new issuance to
• 11:13
  Speaker 1: demonstrate that there are prices that you can buy and
• 11:16
  Speaker 1: sell at. You know, it's interesting that you say you
• 11:19
  Speaker 1: would diversify more toward developed markets. In certain cases, that
• 11:23
  Speaker 1: seems to be actually the opposite of what some people
• 11:26
  Speaker 1: are saying. And for example, Jeffrey Gunlock of Double Line
• 11:29
  Speaker 1: Capital when he said he actually thinks that the US
• 11:31
  Speaker 1: markets could underperform after an incredible outperformance and suggests moving
• 11:36
  Speaker 1: to more global exposure. I'm just wondering, um, how do
• 11:40
  Speaker 1: you sort of defend against your position, and especially considering
• 11:43
  Speaker 1: the fact that a lot of people are saying the
• 11:45
  Speaker 1: US markets have gone so far so fast, diverged from
• 11:48
  Speaker 1: the rest of the world and it can't continue. Well,
• 11:51
  Speaker 1: you know, if if we're talking about I mean, there's
• 11:54
  Speaker 1: equities and there's fixed incomeing out to speak briefly in
• 11:56
  Speaker 1: the equity side, and and you know, we've been positive
• 11:59
  Speaker 1: on the US equity mark, and we talked about equity
• 12:02
  Speaker 1: US equities and Japanese equities, and on the US equity mark,
• 12:05
  Speaker 1: is interesting. I have to give a shout out to
• 12:07
  Speaker 1: a former colleague of mine, Tobias left of It. You
• 12:09
  Speaker 1: did some great work on this when he talked about
• 12:12
  Speaker 1: there are a lot of clients right now or investors
• 12:14
  Speaker 1: are talking about the Schillar cape and they're saying, oh,
• 12:16
  Speaker 1: it's very expensive and it looks like valuations, why would
• 12:20
  Speaker 1: you even buy the US market here? Now? Again, a
• 12:22
  Speaker 1: pullback is plausible, There's there's no doubt about it. But
• 12:25
  Speaker 1: Tobias had made the point in a recent report that said,
• 12:29
  Speaker 1: you know he's there. He doesn't integrate in this measure
• 12:32
  Speaker 1: a cost of capital. And if you look at cost
• 12:34
  Speaker 1: of capital and CAPE and you integrate that, valuations are full,
• 12:38
  Speaker 1: but they're not necessarily rich. So I think there is
• 12:42
  Speaker 1: the way you do it is you manage expectations. You
• 12:44
  Speaker 1: don't expect the kinds of returns that we've had in
• 12:47
  Speaker 1: the past uh to go forward, but you manage that
• 12:51
  Speaker 1: also on a risk adjusted basis, we would expect there
• 12:54
  Speaker 1: to be less volatility, you said CAPE, and you've got
• 12:56
  Speaker 1: to just explain the cyclically adjusted of PE ratio, which
• 13:01
  Speaker 1: which tries to normalize this over time. Um, I'm not
• 13:04
  Speaker 1: going to go for technical explanation him as you know,
• 13:08
  Speaker 1: you're going after my vulnerable spot here, which is which
• 13:12
  Speaker 1: is I'm a bond guy at heart. But I'll get
• 13:15
  Speaker 1: your definition by email. No, I just just wanted to
• 13:18
  Speaker 1: set out the parameters Robert from Yale, this is his
• 13:22
  Speaker 1: his benchmark that everyone follows. Do you perceive that there's
• 13:28
  Speaker 1: going to be any intermediary risk? And I go to
• 13:33
  Speaker 1: this issue of liquidity again, because it is not just
• 13:37
  Speaker 1: the actual instrument or asset that can be at risk.
• 13:42
  Speaker 1: It's sometimes the middleman, the traders in between. They might
• 13:49
  Speaker 1: not have the liquidity in order to withstand any rapid movement. Well,
• 13:53
  Speaker 1: it's a good point. And it's a good point because
• 13:55
  Speaker 1: as we know since Basil three and Dodd Frank and
• 13:58
  Speaker 1: Vocal rule that the primary dealers in the US and
• 14:01
  Speaker 1: financial institutions elsewhere have less ability to absorb or buffer
• 14:06
  Speaker 1: these transitions and volatility because their trading desk can take
• 14:10
  Speaker 1: this on and they have to hold higher quality capital
• 14:12
  Speaker 1: against their risk. It's a very good point because at
• 14:15
  Speaker 1: this time we have the Federal Reserve, which of course
• 14:18
  Speaker 1: it's balance sheet is starting to shrink. UH Bank of
• 14:21
  Speaker 1: Japan maybe ten or twenty years ago in our lifetime.
• 14:24
  Speaker 1: I don't know, but certainly ECB had just announced that
• 14:26
  Speaker 1: they're going to cut their UH purchases in half UH
• 14:31
  Speaker 1: and go to zero at the end of the year.
• 14:33
  Speaker 1: So this is going to be a challenging UM. So
• 14:36
  Speaker 1: we are looking at it. Thanks very much for being
• 14:38
  Speaker 1: with us. Always a pleasure. Michael Brandis, Chief investment strategist
• 14:42
  Speaker 1: E TAU Private Bank. This is Bloomberg. The Treasury Department
• 14:51
  Speaker 1: has weighed in on a potential for tax reform two
• 14:55
  Speaker 1: point oh For example, Treasury Secretary Stephen Manuchin has said
• 15:00
  Speaker 1: that the Department may be able to make a big
• 15:03
  Speaker 1: capital gains tax change without congressional approval. Here tell us
• 15:09
  Speaker 1: more as Chris Mackie. He is the founder of Solution Nomics. Chris,
• 15:12
  Speaker 1: always a pleasure. Thanks for being with us. Tell us
• 15:15
  Speaker 1: what you know about this potential change to the tax
• 15:19
  Speaker 1: code and what you believe it will mean for the country. Well,
• 15:23
  Speaker 1: good morning, it's great to be with you. Thanks for
• 15:25
  Speaker 1: having me. So what we're talking about here is, when
• 15:30
  Speaker 1: you cut through all the details in the minutia, we're
• 15:32
  Speaker 1: talking about a reduction, a further reduction in corporate tax rates.
• 15:36
  Speaker 1: Now we've already seen a significant reduction in corporate tax rates,
• 15:40
  Speaker 1: and unfortunately, UH the results have not been as advertiser
• 15:45
  Speaker 1: as expected. So the idea of further cutting corporate tax
• 15:49
  Speaker 1: rates in the hope that what hasn't happened, namely, UM
• 15:53
  Speaker 1: a greater improvement across the board without significant increases and deficits. UM,
• 16:00
  Speaker 1: that just doesn't make any sense. If they really wanted
• 16:02
  Speaker 1: to do a tax reform, they would have the greatest
• 16:05
  Speaker 1: economic impact, then focus more on the consumer, and specifically
• 16:09
  Speaker 1: the middle income and lower consumer, because they're the ones
• 16:12
  Speaker 1: that are going to go out and spend, which will
• 16:14
  Speaker 1: then cause companies to hire even more. So I'd love
• 16:18
  Speaker 1: to get your perspective on what Kevin Hasset, who is
• 16:21
  Speaker 1: an economic advisor to President Trump, would he put out
• 16:25
  Speaker 1: there earlier in the week where he was talking about
• 16:27
  Speaker 1: the economic boom. I think it was late last week
• 16:30
  Speaker 1: that the tax cuts have caused for the United States
• 16:34
  Speaker 1: and how really President Trump's tenure has marked a turning
• 16:37
  Speaker 1: point for the economy. Do you think that that that
• 16:41
  Speaker 1: you wouldn't get more of a boon if you did
• 16:44
  Speaker 1: it more permanently. What I think is that there's a
• 16:48
  Speaker 1: big difference between what's you know the rhetoric and the reality.
• 16:51
  Speaker 1: Let let me just give you a quick stat here.
• 16:54
  Speaker 1: So we've been hearing a lot of talk about greater
• 16:56
  Speaker 1: wage growth, but we're really talking about is the illusion
• 16:59
  Speaker 1: of greater wage growth, because real wage growth, that is
• 17:03
  Speaker 1: wage growth when you count for inflation, is actually down
• 17:06
  Speaker 1: since the tax bill was passed. Just this recent August,
• 17:11
  Speaker 1: wage games were up two point nine percent, which sounds
• 17:13
  Speaker 1: good and sounds better. However, inflation is up two point
• 17:17
  Speaker 1: seven so the consumer actually got point two increase in
• 17:21
  Speaker 1: real wages versus August of last year before the tax cuts,
• 17:26
  Speaker 1: wages were up two point six percent, but inflation was
• 17:29
  Speaker 1: only two percent, so they actually got a point six
• 17:31
  Speaker 1: percent increase. So we're not even getting what was hoped for.
• 17:36
  Speaker 1: And in addition to that, we're gonna pile on more
• 17:40
  Speaker 1: debt for the consumers. So no, I don't think that
• 17:43
  Speaker 1: actually is the best way to go. But we've got
• 17:46
  Speaker 1: is the equivalent of a sugar high financed by death sits.
• 17:49
  Speaker 1: It's it's unsustainable, and it's not even as good as
• 17:52
  Speaker 1: the rhetoric. Chris. The one trillion dollars of additional debt
• 17:57
  Speaker 1: that was taken on, did that equal anything. When it
• 18:01
  Speaker 1: comes to wages per week. I understand you've written about
• 18:05
  Speaker 1: this in the past, and it looks as though it
• 18:08
  Speaker 1: was an increase of maybe twenty five cents an hour.
• 18:11
  Speaker 1: That's what it translated into. I'm so glad you brought
• 18:15
  Speaker 1: that up. So actually, if you look at the increase
• 18:18
  Speaker 1: from July to August, we're talking a whopping dime ten
• 18:22
  Speaker 1: cents um. Now that's not gonna pay for college. But
• 18:26
  Speaker 1: here's what's even more concerning. If you look at the
• 18:30
  Speaker 1: increase in wages after tax cuts for the eight month
• 18:35
  Speaker 1: period from the end of sev to August, they grew
• 18:39
  Speaker 1: fifty two cents an hour. But the eight months prior
• 18:44
  Speaker 1: to the passage and the tax bill there and he
• 18:46
  Speaker 1: grew forty seven cents an hour. So the actual real
• 18:50
  Speaker 1: increase in wage growth after we took on that additional
• 18:54
  Speaker 1: trillion dollars and what they're talking about being even more
• 18:57
  Speaker 1: was a nickel. So no, there's not a lot of
• 19:01
  Speaker 1: bang for the book, and we're just adding more and
• 19:03
  Speaker 1: more debt, and specifically more and more debt on the consumer,
• 19:07
  Speaker 1: which eventually is going to catch up to them and
• 19:10
  Speaker 1: they're not going to be very happy about what about
• 19:13
  Speaker 1: the effect on business investment. So on business investment, that's
• 19:17
  Speaker 1: very interesting. Everybody likes to tout the increase in business investment,
• 19:20
  Speaker 1: but I haven't checked the most recent revisions. But the
• 19:23
  Speaker 1: last time I checked this, the rate of increase in
• 19:26
  Speaker 1: business investment is actually down. So yes, business investment is increasing,
• 19:31
  Speaker 1: but it was increasing before the tax cuts. It's just
• 19:35
  Speaker 1: now it's increasing at a lower rate than before the
• 19:38
  Speaker 1: tax cuts. You know, Chris, I'd love your opinion. Since
• 19:41
  Speaker 1: you do contribute to the Fed's Beige Book and have
• 19:43
  Speaker 1: a consulted with the Federal Reserves, you have an intimate
• 19:46
  Speaker 1: knowledge of policies on a range of different fronts, as
• 19:51
  Speaker 1: well as from a range of different ideologies. I'm just wondering,
• 19:55
  Speaker 1: you know, Elizabeth Warren coming out the Senator saying today
• 19:58
  Speaker 1: that she thinks the big banks should be broken up,
• 20:00
  Speaker 1: you have calls for more regulation on the democratic side.
• 20:03
  Speaker 1: I mean, do you think that that's the way to go?
• 20:06
  Speaker 1: I mean, do you think that do you? Do you
• 20:08
  Speaker 1: do you kind of agree with the basis of having
• 20:12
  Speaker 1: a fewer government interventions and and sort of cutting the
• 20:15
  Speaker 1: taxes if possible, if you could also cut spending, or
• 20:17
  Speaker 1: do you just disagree fundamentally with with with sort of
• 20:21
  Speaker 1: in general, cutting taxes in orders for growth. No, I
• 20:26
  Speaker 1: don't disagree with cutting taxes. What I disagree with is
• 20:29
  Speaker 1: cutting taxes without any connection to um actual wage growth
• 20:35
  Speaker 1: or employment growth. So, if you really want to do
• 20:36
  Speaker 1: tax reform two point notes, it's just very logical. You say,
• 20:40
  Speaker 1: companies that increase hiring in the companies that increase wages,
• 20:44
  Speaker 1: they get the biggest tax cuts. What we did instead
• 20:47
  Speaker 1: was we had a home based tax policy. We cut
• 20:50
  Speaker 1: taxes for all corporations across the board and hoped they
• 20:53
  Speaker 1: would create more jobs and hoped they would increase wages.
• 20:56
  Speaker 1: Now some did, but a fair number didn't, but they
• 20:59
  Speaker 1: got the same tax break. So if you wanted to
• 21:01
  Speaker 1: get a better r a better return on investment, tie
• 21:05
  Speaker 1: each company's tax rate to each company's rate of employment
• 21:09
  Speaker 1: growth and wage growth. That's how you get the best
• 21:12
  Speaker 1: bang for the buck for the American citizen. Chris, could
• 21:16
  Speaker 1: you just do about thirty seconds or so on trade policy,
• 21:20
  Speaker 1: because I know you've been active in following the trade
• 21:23
  Speaker 1: negotiations between the United States and China, but also trade
• 21:27
  Speaker 1: negotiations between the United States and the European Union. Certainly,
• 21:32
  Speaker 1: boy whish we had more time for that one. But
• 21:35
  Speaker 1: here here's the summary. Look Um, something needed to be
• 21:38
  Speaker 1: done about trade policy. The tariffs are unequal. We're getting
• 21:41
  Speaker 1: the bad end of the deal. We should at least
• 21:44
  Speaker 1: have reciprocal terms. My concern with what's currently being done
• 21:49
  Speaker 1: is it's being done two suddenly. Corporations need time to
• 21:54
  Speaker 1: be able to adjust the logistics supply chains. So I
• 21:58
  Speaker 1: agree that something needs to be done, agree that we
• 22:00
  Speaker 1: need to level the playing field, but he needs to
• 22:03
  Speaker 1: be done more gradually so the corporations can adjust on
• 22:06
  Speaker 1: their supply chains. Chris Mackie, thank you so much for
• 22:10
  Speaker 1: being with us. Really a pleasure. Chris Mackie founder of
• 22:13
  Speaker 1: Solution Omics in New York. He has been checking out
• 22:17
  Speaker 1: the economy in the US for decades and advising the
• 22:20
  Speaker 1: FED as well as their Beige Book. Here's a question
• 22:27
  Speaker 1: we hear about some companies heading into the cannabis sector.
• 22:31
  Speaker 1: They tend to be alcohol companies and not tobacco ones.
• 22:36
  Speaker 1: What gives here? Why wouldn't tobacco be the national participant here?
• 22:40
  Speaker 1: Joining us now as Tara la Chapelle, A column is
• 22:42
  Speaker 1: covering deals and all of the consumer aspects of our
• 22:45
  Speaker 1: world and for Bloomberg Opinion as well as Christine Oram.
• 22:49
  Speaker 1: She is a news reporter coming to us from Toronto
• 22:52
  Speaker 1: for Bloomberg. Christine, let's start with you, what do we
• 22:55
  Speaker 1: know so far about how much tobacco has tried to
• 22:58
  Speaker 1: get into my irjuana and just how much that contrasts
• 23:02
  Speaker 1: with alcohol's interest. Well, we haven't seen a lot of
• 23:06
  Speaker 1: interest from the tobacco industry so far, and you're absolutely right.
• 23:09
  Speaker 1: Compared to UM the investments and indications of interest from
• 23:13
  Speaker 1: the alcohol industry, tobacco is virtually non existent. Um. We
• 23:18
  Speaker 1: had one very small investment from a company from Imperial Brands,
• 23:21
  Speaker 1: the British company in a very small, closely held company
• 23:25
  Speaker 1: called at Oxford Cannabinoid Technologies, so small that they didn't
• 23:29
  Speaker 1: actually even give a value of that investment. And Alliance
• 23:33
  Speaker 1: One also has a stake in a Canadian cannabis producer.
• 23:37
  Speaker 1: But other than that, there hasn't been a lot of interest,
• 23:39
  Speaker 1: especially from the major players in the tobacco industry. Okay,
• 23:42
  Speaker 1: So Tara, come on in here, and from a strategic standpoint,
• 23:46
  Speaker 1: why wouldn't the Philip Morris is Morris is the world
• 23:48
  Speaker 1: flock to the cannabis industry, right it seems like such
• 23:52
  Speaker 1: a natural fit. Um. I think there's probably a couple
• 23:54
  Speaker 1: of things going on. It could be that behind the
• 23:57
  Speaker 1: scenes they are working on this. We know in the
• 23:59
  Speaker 1: past ye iss ago that they started to um, and
• 24:02
  Speaker 1: I think maybe they're waiting for federal legalization before they
• 24:05
  Speaker 1: really make a big move. And they've also got a
• 24:07
  Speaker 1: lot of other things on their plate right now. You know,
• 24:09
  Speaker 1: they've been trying to get into vapors, which is probably
• 24:12
  Speaker 1: cannibalizing a little bit of their cigarette sales. So I
• 24:15
  Speaker 1: think you know they're dealing with that right now, but
• 24:18
  Speaker 1: you know, it could be that they're throwing force and
• 24:20
  Speaker 1: labbying efforts behind the scenes that we don't know about.
• 24:22
  Speaker 1: And I mean, that would make a lot of sense
• 24:24
  Speaker 1: to Tara. The Food and Drug Administration has already targeted
• 24:29
  Speaker 1: vaping right there, alarmed by the increase in use among teenagers,
• 24:34
  Speaker 1: and they've declared that teenage use of electronic cigarettes has
• 24:37
  Speaker 1: reached what they describe as an epidemic proportion. Is that
• 24:42
  Speaker 1: also one of the reasons why you believe that tobacco
• 24:45
  Speaker 1: companies are going slow It could be I mean, that's
• 24:49
  Speaker 1: been a pro and con for them really, because on
• 24:52
  Speaker 1: the one hand, the FDA is going after the amount
• 24:55
  Speaker 1: of nicotine in these products because that obviously makes it
• 24:58
  Speaker 1: very addictive and they want to reduce that, which hurts
• 25:00
  Speaker 1: the major tobacco companies. On the other hand, going after
• 25:04
  Speaker 1: the flavors in products that jewel Cells, which is a
• 25:08
  Speaker 1: new upstart competitor for them, and a really big competitor
• 25:11
  Speaker 1: that's done a lot of marketing, a lot of advertising.
• 25:14
  Speaker 1: I mean, that could be a boon for the big
• 25:16
  Speaker 1: tobacco companies if they could get this other competitors sort
• 25:19
  Speaker 1: of keep them away a little bit off their turf.
• 25:21
  Speaker 1: Christine comes in here because you know, what Terras says
• 25:24
  Speaker 1: is really compelling that maybe the big tobacco companies are
• 25:27
  Speaker 1: working on the cannabis industry behind the scenes. Suggests that
• 25:31
  Speaker 1: they would want to do it in house. It would
• 25:33
  Speaker 1: be homegrown. If you will, Christine, can you give us
• 25:36
  Speaker 1: a sense of what kind of competition that would pose
• 25:38
  Speaker 1: to the existing cannabis companies given how well their stocks
• 25:42
  Speaker 1: have doing. I mean, I'm thinking of till right, which
• 25:44
  Speaker 1: is up six percent since it's I p O. Yes,
• 25:47
  Speaker 1: they've seen some some ridiculous stock moves in the space,
• 25:50
  Speaker 1: and that you know that what really generated those moves
• 25:52
  Speaker 1: with canopies deal with Constellation brands, which is of course
• 25:55
  Speaker 1: the company behind Corona Beer, Robert Mundabby Wine, many other
• 25:59
  Speaker 1: brands that were familiar with us, and that has sent
• 26:00
  Speaker 1: stock storing. So that was because of the alcohol involved
• 26:03
  Speaker 1: into the space. Of course, if if a major tobacco
• 26:05
  Speaker 1: company got into cannabis decided to start doing its own
• 26:09
  Speaker 1: work without partnering with an existing company, that would pose
• 26:12
  Speaker 1: a potentially a pretty big threat because they have a
• 26:15
  Speaker 1: lot of resources and and frankly cash behind them. However,
• 26:20
  Speaker 1: there's also the issue of reputation that you have to
• 26:23
  Speaker 1: take into account, and this goes both ways. I was
• 26:25
  Speaker 1: talking to an analyst recently who looks at both tobacco
• 26:29
  Speaker 1: and cannabis, and he was saying, you know, he's gotten
• 26:32
  Speaker 1: the sense that a lot of tobacco companies have been
• 26:33
  Speaker 1: wary about getting into the cannabis space because they're worried
• 26:36
  Speaker 1: about the damage it could do to their reputation, which
• 26:39
  Speaker 1: is sort of ironic because I don't think the tobacco
• 26:41
  Speaker 1: companies have much of a reputation to protect. On the
• 26:44
  Speaker 1: other hand, you could see from a cannabis company perspective.
• 26:46
  Speaker 1: They're trying to put forward right now, this sort of holistic,
• 26:49
  Speaker 1: healthy view that cannabis is good for you, it has
• 26:52
  Speaker 1: medical properties and so on. By having a tobacco player
• 26:55
  Speaker 1: in the industry, a lot of those companies may not
• 26:58
  Speaker 1: want to partner with a tobacco company because it could
• 27:00
  Speaker 1: actually potentially damage their brand as well. Christine just could
• 27:04
  Speaker 1: to expand a little bit on how Canada is legalizing
• 27:09
  Speaker 1: the recreational use of marijuana and who's controlling and running
• 27:13
  Speaker 1: that aspect of the business. So yes, legal legalization will
• 27:18
  Speaker 1: happen on October seventeen, which will open recreational use to
• 27:21
  Speaker 1: all adults across the country Canada. Canada will be just
• 27:25
  Speaker 1: the second country in the world after Uruguay to legalize
• 27:28
  Speaker 1: on a countrywide basis. UH. This is very much a
• 27:32
  Speaker 1: government initiative. Our Prime Minister Justin Trudeau stated about five
• 27:36
  Speaker 1: years ago that he was in favor of legalization and
• 27:38
  Speaker 1: made that a priority as soon as he was elected
• 27:41
  Speaker 1: UH in twenty fifteen. So this has been underway for
• 27:43
  Speaker 1: a while. UH. But it's also generated a huge private
• 27:47
  Speaker 1: industry here. We have over a hundred and twenty companies
• 27:50
  Speaker 1: that are probably traded in Canada, including a lot of
• 27:52
  Speaker 1: companies with US operations because currently those American companies can't
• 27:56
  Speaker 1: list on US stock exchanges, and so a lot of
• 27:59
  Speaker 1: Canadian investment in her stock exchanges companies, uh, you know,
• 28:03
  Speaker 1: and sillary businesses have arisen around this industry in Canada,
• 28:07
  Speaker 1: at least for the time being, has established itself as
• 28:09
  Speaker 1: a global leader. I think the question is, you know,
• 28:11
  Speaker 1: if and when the US does legalize on a national level,
• 28:14
  Speaker 1: on a federal level, whether Canada can maintain that leadership position,
• 28:18
  Speaker 1: because of course the American market is so much bigger well,
• 28:21
  Speaker 1: and tera that raises a question of what the barriers
• 28:23
  Speaker 1: to entry are and if tobacco is going to get in,
• 28:26
  Speaker 1: do they have an advantage because of the distribution networks
• 28:29
  Speaker 1: or are they at a disadvantage because they're coming to
• 28:31
  Speaker 1: it late in the game. I think, no matter what,
• 28:33
  Speaker 1: they'll always have a big advantage just given their experience,
• 28:36
  Speaker 1: you know, coming over regulatory hurdles, working with the government.
• 28:39
  Speaker 1: I mean, I think it would be unwise underestimate big
• 28:42
  Speaker 1: tobacco's power in the market. On the other hand, I
• 28:45
  Speaker 1: think it makes so much sense that companies like Constellation
• 28:47
  Speaker 1: are looking ahead and seeing you know, sales of liquor
• 28:51
  Speaker 1: and beer and wine. I mean that's it's a tough
• 28:53
  Speaker 1: market and it's not growing as quickly as it used to.
• 28:56
  Speaker 1: It makes a lot of sense to start looking at
• 28:58
  Speaker 1: this and while you know, I'm sure that they have
• 29:00
  Speaker 1: an eye toward the US market, which is huge there,
• 29:03
  Speaker 1: it makes sense to start in Canada and get a
• 29:05
  Speaker 1: foothold there, and I think these early movers are getting
• 29:07
  Speaker 1: rewarded for it by the investors. Now, I want to
• 29:10
  Speaker 1: thank you both very much for joining us and enlightening
• 29:13
  Speaker 1: us about this issue. Bloomberg's Christine ram Area, Canada Cannabis reporter,
• 29:19
  Speaker 1: and of course October seventeenth, as she mentioned, the moment
• 29:22
  Speaker 1: when it will become legal in Canada for recreational marijuana
• 29:26
  Speaker 1: and our thanks also to Tara la Chapelle, Bloomberg cover
• 29:30
  Speaker 1: columnists covering all sorts of deals and the media, telecommunications
• 29:34
  Speaker 1: Berkshire Hathaway for example, and now of course cannabis. Thanks
• 29:38
  Speaker 1: for listening to the Bloomberg P and L podcast. You
• 29:41
  Speaker 1: can subscribe and listen to interviews at Apple Podcasts, SoundCloud,
• 29:45
  Speaker 1: or whatever podcast platform you prefer. I'm Pim Fox. I'm
• 29:48
  Speaker 1: on Twitter, at pim Fox. I'm on Twitter at Lisa Abramo.
• 29:53
  Speaker 1: It's one before the podcast. You can always catch us
• 29:55
  Speaker 1: worldwide on Bloomberg Radio to Bo